**RBI floating Rate saving Bond were launched in 2020, idk why anybody is not talking about it **
They are providing interest rate half yearly that is 7.15. This floating savings Bond has a lock in period of 7 years and another disadvantages it is taxable but the returns it is providing is pretty good. The interest rate is not cumulative that means it will be transferred to your account every sixth one that is 1st January and 1st July of each year. This interest rate is determined with respect to the national saving certificate interest rate the current interest rate is 7.15 % and current interest rate for NSC is 6.80%. I am a bit sceptical with respect to the taxation structure as the TDS will be deducted at source and interest amount will be subject to tax income slab, so I have a lump sum amount of somewhat around 20 lacs and I can lock my money for the period seven years but I am still sceptical about purchasing this bond. Any views with respect to the bond market will be highly appreciated.
It serves no purpose in my opinion.
Senior citizens savings scheme provides similar returns.
If you want growth, go for NSC as compounding will increase the returns.
Moreover rising interest rates is not a good thing for the economic growth of the country. The government will try to keep the rates low at all costs.
I have put a big part of my debt portfolio in these bond. Advantage compared to NSC is no hassles of dealing with post offices. HDFC people came to my home and application was smooth. Obviously they tried to sell their products. Now HDFC Netbanking has given option to invest in these bonds online so its much easier process now. I like the bi-annual cashflow which i can use it to invest elsewhere. Its backed by RBI so no fears of any defaults.
Obviously like PPF and other such good debt schemes, no bank person will actively promote these schemes since they earn much more commissions from other products.
I personally prefer investing G-secs, even though it pays 0.5% less yield compared to similar bond duration. Getting, 0.5% more for illiquidity is pointless from my point of view.
Only illiquid debt investment worth it to invest is PPF (equivalent to approx 10% yield taxable government bond).
G - secs are another great option. Do you invest G secs through mutual funds as gilt funds or government funds. I don’t want to opt for MF due to expense ratio. Can you suggest which route should I prefer to purchase G - secs bonds
I invest directly in G-sec through Zerodha Coin. Every week from tuesday to thurday, there is option to directly buy it from government.
Because of taxation, interest payment on G-sec is taxed as income vs capital gain tax in mutual fund, even considering expense ratio there is slight advantage in return from mutual fund (if you are holding identical bond duration to maturity).
I go with direct bond investing because it allows me to have direct control over the average bond duration of maturity of my bond portfolio (which I can easily increase it to more than 30 years if needed). In government bond investing the only factors which influence returns are average bond duration of maturity of bond protfolio, income tax and transaction charges (including expense ratio, if going via mutual fund).
How about investing Life Insurance Product which gives 6.43% post tax IRR.
I believe these bonds are very well suited for investors who don’t want risks associated with debt funds or G-secs, want a regular source of income without worrying about credit risk and fall in the lower tax bracket. So this is a good offering, esp for senior citizen in such low interest environment, given the investor does not mind the lock in. The interest is linked to rate of interest on National Saving Certificate (NSC) and pays 35 basis points more than the rate offered on NSC. So in both falling and rising rate scenario it will most probably fetch higher returns than FD.